Tax efficient investing
When it comes to investing, what matters isn’t just how much your portfolio grows — it’s how much of that growth you get to keep. That’s the goal of tax-efficient investing: helping your money go further by reducing tax drag and making smart decisions about where, when, and how you invest.
In Canada, the most important factors in building a tax-smart investment strategy include:
Tax treatment of investment income
strategic use of registered accounts
Asset location across account types
Tax-loss selling and rebalancing opportunities
Coordinating RRSP, TFSA, and non-registered withdrawals
Minimizing taxes in retirement
Reducing tax burdens on your estate
How your investments are taxed depends on the type of income they generate. Interest income is fully taxable, while eligible dividends and capital gains receive preferential tax treatment. That means where your investments are held — and how they’re balanced — can have a big impact. Holding bonds in an RRSP and equities in a non-registered account is a common example of effective asset location.
Registered accounts also play a critical role. RRSPs, TFSAs, and FHSAs all offer tax advantages — but they work differently. An RRSP provides immediate tax deductions and deferral of tax until withdrawal. A TFSA allows investments to grow and be withdrawn completely tax-free. Choosing the right account for the right investment — and managing your contributions and withdrawals carefully — can result in significantly higher after-tax returns over time.
When markets dip, there may be opportunities for tax-loss selling — realizing losses to offset capital gains elsewhere. Combined with tax-aware rebalancing, this can keep your portfolio aligned while reducing your tax bill. It’s not about reacting to every market movement, but about making thoughtful, intentional adjustments when it counts.
Tax-efficient investing also becomes especially important during retirement. The order in which you draw from your RRSP, TFSA, and non-registered accounts affects your taxable income, eligibility for government benefits, and how long your capital lasts. Coordinating withdrawals year by year — rather than relying on rules of thumb — can help you pay less tax and keep more flexibility.
Finally, as your wealth grows, planning ahead can reduce the tax burden on your estate. Whether it’s through strategic charitable giving, gifting to family, or structuring accounts for tax-efficient succession, your investment plan should reflect not just your life goals, but your legacy goals as well.
Tax-efficient investing is not about complexity — it’s about being intentional. With the right guidance, you can make every dollar work harder, reduce unnecessary tax costs, and feel confident your wealth is growing in the most efficient way possible.
